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Fed unlikely to raise rates until at least 2014

WASHINGTON (AP) — The Federal Reserve went further than ever
Wednesday to assure consumers and businesses that they'll be able
to borrow cheaply well into the future.

The Fed pushed back the date for any likely increase in its
benchmark interest rate by at least a year and a half, until late
2014 at the earliest.

Its new timetable showed the Fed is concerned that the economy's
recovery remains stubbornly slow. But it also thinks inflation will
stay tame enough for rates to remain at record lows without
igniting price increases.

Chairman Ben Bernanke cautioned that its late-2014 horizon for
any rate increase is merely the Fed's "best guess." It has the
flexibility to shift its timetable if the economic picture changes.
But speaking at a news conference later Wednesday, Bernanke said:

"Unless there is a substantial strengthening of the economy in
the near term, it's a pretty good guess we will be keeping rates
low for some time."

Treasury yields fell after the Fed made its announcement around
12:30 p.m. EST. But yields stopped falling after the Fed issued
forecasts for the economy and interest rates. They showed that
while some members foresee super-low rates beyond 2014, six of the
17 members forecast a rate increase this year or next.

Lower yields could help further reduce mortgage rates and
possibly boost stock prices as investors shift out of
lower-yielding Treasurys.

Stocks, which had traded lower all day, quickly recovered their
losses. The Dow Jones industrial average, which had been down about
60 points before the announcement, was up 74 points in late
afternoon.

Though Bernanke stressed the Fed's flexibility to adjust rates
as its outlook shifts, some analysts expressed concern.

Dana Saporta, an economist at Credit Suisse, said the Fed's
now-much-longer timetable for a likely rate increase could
compromise its credibility if it must raise rates before late 2014.
Unexpectedly strong growth and inflation could force such an
increase.

"It's striking that the Fed would make an implicit commitment
for almost three years," Saporta said. "It seems like an awfully
long time to make such a statement. Given that no one knows what
will happen ... the (Fed) may eventually regret this."

The Fed reduced its outlook for growth this year but is slightly
more optimistic about the unemployment rate. It expects the economy
to grow between 2.2 percent and 2.7 percent this year. That's down
from its November's forecast of between 2.5 percent and 2.9
percent.

But it sees unemployment falling as low as 8.2 percent this
year, better than its earlier forecast of 8.5 percent. December's
rate was 8.5 percent.

The Fed also offered a firmer target for inflation - 2 percent -
in a statement of its long-term policy goals.

The central bank said in a statement after a two-day policy
meeting that the economy is growing moderately, despite some
slowing in global growth. It held off on any further bond-buying
programs to try to increase growth.

The Fed announced no further bond buying efforts. But it held
out the possibility of doing so later. It said it was prepared to
adjust its "holdings as appropriate to promote a stronger economic
recovery in the context of price stability."

Some economists say that means the Fed will take further action
soon.

Julie Coronado, an economist at BNP Paribas, said the Fed is
signaling it will boost its purchases of bonds and other assets if
growth fails to accelerate, even if the economy doesn't slow.

That is a "very low bar indeed," she wrote in a note to
clients.

The Fed described inflation as "subdued." That was a more
encouraging description than it offered last month. A more positive
outlook on prices gives the Fed more room to keep rates low.

"This is a fairly clear-cut signal that inflation is not on
their radar at this point," Tom Porcelli, an economist at RBC
Capital Markets, wrote in a research note.

The Fed's statement was approved on a 9-1 vote. Jeffrey Lacker,
president of the Richmond regional Fed bank, dissented. He objected
to the new time frame for a rate increase.

The extended time frame is a shift from the Fed's previous plan
to keep the rate low at least until mid-2013. Some economists said
the new late-2014 target could lead to further Fed action to try to
invigorate the economy.

The Fed used the same language as before in describing Europe's
debt problems and the impact on the world economy.

The economy is looking a little better, according to recent
private and government data. Companies are hiring more, the stock
market is rising, factories are busy and more people are buying
cars. Even the home market is showing slight gains after three
dismal years.

Still, the threat of a recession in Europe is likely to drag on
the global economy. And another year of weak wage gains in the
United States could force consumers to pull back on spending, which
would slow growth.

The Fed has taken previous steps to strengthen the economy,
including purchases of $2 trillion in government bonds and
mortgage-backed securities to try to cut long-term rates and ease
borrowing costs.

The idea behind the Fed's two rounds of bond buying was to drive
down rates to embolden consumers and businesses to borrow and spend
more. Lower yields on bonds also encourage investors to shift money
into stocks, which can boost wealth and spur more spending.

Some Fed officials have resisted further bond buying for fear it
would raise the risk of high inflation later. And many doubt it
would help much since Treasury yields are already near historic
lows. But Bernanke and other members have left the door open to
further action if they think the economy needs it.

The Fed said it would keep its holdings of Treasury securities
and mortgage-backed bonds at record levels and continue a program
to further drive long-term rates lower by selling shorter-term
securities and buying longer-term bonds.